It will likely take some time to observe the impact of the Affordable Care Act (ACA). Many employers will take a “wait and see” approach before making wholesale changes to their plans, and economic conditions in 2014 will also have an impact on employer decisions about coverage for their employees. These effects will also vary by employer and size and, to some degree, the nature of the workforce.1.) Small employers currently offer coverage at much lower rates than larger firms but will be eligible for new tax credits that encourage them to do so. Midsize and large employers will not be eligible for new tax credits but may face new penalties for dropping or not offering coverage.2.) Unlike many larger businesses, many midsize firms are fully insured. Although some midsize firms self-insure, they experience larger overhead costs per employee due to higher administrative costs, such as fees to purchase reinsurance to minimize their risk. Due to these higher administrative costs and smaller scale, midsize firms will generally be more sensitive than large firms to changes coming in the ACA.

Some of the key provisions

1) “Pay or Play” Rules (section 1513 - effective 2014)Employers with at least 50 full-time equivalent employees are expected to either offer coverage (“play”) or pay a penalty (“pay”). 2) Insurance Exchange & Affordability Tests (section 1401 - effective 2014)The ACA establishes state-operated (or federally-operated if states opt out) insurance exchanges in 2014. Individuals and families who purchase insurance through an exchange are eligible for tax credits to subsidize premiums if their income is at or below 400 percent of the federal poverty level ($89,400 for a family of four in 2011). Depending on income, some employees may be eligible for expanded Medicaid coverage or for subsidies if their employer's health plan does not pass certain affordability tests. 3) Community Rating Rules (section 2710 - effective 2014)Insurers are limited in the factors they can use to adjust premiums. Under the ACA, insurers can only vary premium costs for family size, age, geographic location and tobacco use and cannot use previous healthcare claims or health status as factors in premium determination. Also, premiums for older Americans can be no more than three times that for younger Americans. 4) Essential Health Benefits Tests (section 1302 - effective 2014)The ACA will establish benefit guidelines to standardize health plans offered to individuals and small groups inside and outside the exchanges. Specifically, health plans must cover “essential benefits”, limit annual cost-sharing in high-deductible plans, and standardize benefit packages. 5) Nondiscrimination Rules (section 2716 - effective 2014)New nondiscrimination rules will be applied to fully insured plans toimpose financial penalties on firms that offer richer health benefits to highly compensated individuals (HCIs). A civil action can also be brought against employers by the Department of Labor to force them to comply with these rules. 6) Automatic Enrollment of New Employees (section 1511 - effective 2014)Employers with more than 200 full-time employees that offer at least one health plan must automatically enroll new full-time employees in the employer health plan with the lowest employee premium contribution. Employees can opt out of this plan and choose a more expensive employer plan or receive family coverage through a spouse or family member. 7) Excise Tax on High Cost Plans (section 9001 - effective 2018)Beginning in 2018, employer health plans will face a 40 percent marginal tax on amounts that exceed $10,200 for single workers and $27,500 for families (with some adjustments for retirees and those in high-risk occupations). Since the cap will be adjusted annually, an increasing number of health plans could be subject to the tax if healthcare inflation remains high. The excise tax cannot be avoided by shifting premium costs to employees because the tax is triggered by the sum of employer and employee premium contributions.

These examples are intended to assist employers in understanding some of the key provisions of the ACA that may affect them. Employers should consult a professional benefits advisor to obtain a thorough analysis for their particular firms.

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